The Fall Economic Update Brought Some Good News for Manufacturers

For years Canadian Manufacturers & Exporters (CME) has been telling anybody who would listen in Ottawa that the Canadian government needs to make moves to improve competitiveness. That was years before the Trump administration dramatically overhauled the American corporate tax structure.

When the Americans, our largest trading partner and competitor, boosted their tax competitiveness it became even more important for the Canadian government to follow suit.

While the federal government failed to address Alberta’s market access challenge and continues to hammer us with new regulations on resource development, they finally delivered some needed relief.

The Fall Economic Statement released in November includes new measures that could benefit Alberta’s manufacturing and exporting sector – the most significant being improvements to the Accelerated Investment Incentive. Under the new rules, manufacturers can take advantage of an immediate 100 per cent write-off for machinery and equipment. The incentive applies to any qualifying investment made after November 20th of 2018 and is available to Alberta’s oil and gas industry. Qualifying investments have been expanded to include software.

There are also new supports for export diversification. A whopping $1.1 billion Export Diversification Strategy aims to increase Canadian exports by 50 per cent by 2025 by increasing funding for CanExport and Trade Commissioner services, providing $10 million over three years to support SME export readiness and capacity, and $13.5 million over five years to create SME mentorship programs.

On the regulatory side, the federal government committed to reassess how regulations are set and prioritize economic competitiveness throughout the rule-making process. They also committed to working with the provinces to harmonize and streamline regulations to boost internal trade.

The feds also added another $800 million to the Strategic Innovation Fund to encourage research and development and help Canadian firms scale up.

The challenge here is that Canadian companies are increasingly taking their capital out of Canada and investing in other jurisdictions, while foreign investment in Canada is drying up. For example, since 2013, US investment in Canada has halved while Canadian investment in the US has tripled. In just four years, Canada has swung from a $15 billion net inflow of investment from the US to a net outflow of nearly $60 billion.

Canada-US investment flows are just an example of the broader challenge: Canada’s share of global foreign direct investment (FDI) is falling precipitously. According to data from the United Nations Conference on Trade and Development (UNCTAD), FDI flows into Canada in 2017 were 64 per cent below their pre-recession average in 2005-2007. Meanwhile investment flows into the US over that period increased by 48 per cent.

Canada desperately needed to make a move on competitiveness and we took a step forward with the Fall Economic Statement. More needs to be done in 2019 if we are going to achieve the stated goal of increasing exports by 50 per cent.

Canadian Manufacturers & Exporters (CME) is the voice of Canadian manufacturing. CME represents more than 2,500 companies who account for an estimated 82 per cent of manufacturing output and 90 per cent of Canada’s exports.